Work Opportunity Tax Credit: What You Need to Know

Did you know that you can get a tax credit for employing people from certain targeted groups? Welcome to the Work Opportunity Tax Credit (WOTC).

Sounds pretty sweet. What is it?

The WOTC is a credit given to employers who hire someone from a certain targeted group. It’s a credit against income tax for a percentage of the first year of compensation for an employee. Generally, this amounts to 40 percent of the first $6,000 of qualified wages, although it does vary by group and individual hours worked.

What do you mean by targeted groups?

The groups specifically called out by the WOTC include:

  • Qualified IV-A recipients
  • Qualified veterans
  • Qualified ex-felons
  • Vocational rehabilitation referrals
  • Qualified summer youth employees
  • Designated community residents at least 18 years of age but under age 40
  • Qualified food stamp recipients
  • Qualified supplemental security income recipients
  • Long-term temporary assistance recipients

In addition. “qualified long-term unemployment recipients” was added to the list of targeted groups effective January 1, 2016. This refers to those who have been employed for 27 weeks or more.

How do I get it?

In order to claim the WOTC, you as an employer must do one of the following:

  1. Obtain certification from a designated local agency (typically a state employment security agency). This validates an employee is in fact a member of a targeted group and must be completed on or before the day the person begins work.
  2. Complete Form 8850 (Pre-Screening Notice and Certification Request for the Work Opportunity Credit), on or before the day the person is offered employment. In addition, you must submit it to the appropriate designated local agency no later than 28 days after the employee begins. But wait, there’s more. You also must submit a Department of Labor (DOL) Employment and Training Administration Form 9061/9062.

Why are we talking about this now?

Originally, the WOTC was one of the tax measures that expired in 2014. Now don’t worry, you didn’t read this blog for nothing. The Protecting Americans from Tax Hikes Act of 2015 (more commonly known as the PATH Act), extended the WOTC from January 1, 2015 to December 31, 2019. So you have plenty of time to use it.

A version of this blog first appeared on eidebailly.com.

2 comments on “Work Opportunity Tax Credit: What You Need to Know

  1. Great Article. suggestions – I Appreciate the insight , Does someone know where I might be able to locate a template IL IL444-4737 example to fill out ?

    Like

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